10-QPeriod: Q3 FY2017

Accenture plc Quarterly Report for Q3 Ended May 31, 2017

Filed June 22, 2017For Securities:ACN

Summary

Accenture plc's Q3 FY17 filing (period ending May 31, 2017) indicates solid revenue growth, driven by strong demand in its consulting and outsourcing services, particularly in the Products, Financial Services, and Growth Markets segments. The company reported a 5% increase in net revenues in U.S. dollars (7% in local currency) for the nine-month period, demonstrating resilience in a dynamic global market. However, profitability was significantly impacted by a substantial pension settlement charge of $510 million related to the termination of its U.S. pension plan. This charge led to a decrease in operating income and diluted earnings per share compared to the prior year. Despite this one-time expense, the underlying operational performance showed improvements, with gross margins increasing and adjusted operating income showing a modest year-over-year gain. The company also highlighted continued investment in business acquisitions, which contributed to a higher outflow in investing activities. Accenture maintained a strong liquidity position with substantial cash and cash equivalents. The company reiterated its commitment to returning capital to shareholders through share repurchases and dividends, with plans to continue significant share buybacks. Despite macroeconomic uncertainties and currency fluctuations, Accenture expressed confidence in its ability to meet future working capital and investment needs through operating cash flows and existing credit facilities.

Financial Statements
Beta
Revenue$9.36B
Cost of Revenue$6.45B
Gross Profit$2.91B
Operating Expenses$8.49B
Operating Income$865.43M
Interest Expense$3.61M
Net Income$669.47M
EPS (Basic)$1.08
EPS (Diluted)$1.05
Shares Outstanding (Basic)619.44M
Shares Outstanding (Diluted)658.77M

Key Highlights

  • 1Net revenues for the nine months ended May 31, 2017, increased by 5% in U.S. dollars (7% in local currency) compared to the prior year, showcasing consistent demand for Accenture's services.
  • 2A significant pension settlement charge of $510 million was recorded in the nine-month period, negatively impacting reported operating income and net income.
  • 3Diluted earnings per share for the nine months ended May 31, 2017, were $3.96, a decrease from $4.77 in the prior year, largely due to the pension settlement charge and a prior year gain on sale of business.
  • 4Gross margin improved to 31.7% for the nine months ended May 31, 2017, from 31.2% in the prior year, driven by lower payroll costs as a percentage of net revenues.
  • 5Cash flows from operating activities increased by $430 million year-over-year for the nine-month period, reaching $3,031 million, indicating strong operational cash generation.
  • 6The company continued its aggressive share repurchase program, utilizing $1.92 billion for Class A ordinary shares and $0.07 billion for other share programs in the first nine months of FY17.
  • 7Investments in business acquisitions increased significantly, with cash used in investing activities rising by $1,034 million compared to the prior year, reflecting strategic growth initiatives.

Frequently Asked Questions

The primary driver for the decrease in reported operating income and net income was a substantial pension settlement charge of $510 million recorded in the current period related to the termination of Accenture's U.S. pension plan. This one-time charge significantly impacted the company's profitability for the period.

Accenture reported solid revenue growth, with net revenues increasing 5% in U.S. dollars (7% in local currency) for the nine months ended May 31, 2017. The Products segment showed particularly strong growth (16% in local currency), followed by Financial Services (7% in local currency) and Growth Markets (11% in local currency). Consulting and outsourcing services both contributed positively to this growth.

Accenture maintained a strong liquidity position, with cash and cash equivalents of $3.4 billion as of May 31, 2017. Operating cash flow increased year-over-year to $3,031 million for the nine months ended May 31, 2017. The company is committed to returning capital to shareholders and continued its significant share repurchase program, intending to use a substantial portion of operating cash flow for buybacks, in addition to paying dividends.

Accenture is preparing to adopt new accounting standards, including ASC 606 'Revenue from Contracts with Customers' effective September 1, 2018, which is not expected to have a material impact on its financial statements. The company is also assessing the impact of ASC 2016-02 'Leases', which is expected to have a material impact on its balance sheet but not significantly on other financial statements.